Entrepreneurial Ecosystems

Erik Stam
Ben Spigel

Discussion Paper Series nr: 16-13

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Erik Stam
Utrecht University
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Utrecht University School of Economics
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Ben Spigel
University of Edinburgh Business School
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Utrecht School of Economics
Tjalling C. Koopmans Research Institute
Discussion Paper Series 16-13

Entrepreneurial Ecosystems
Erik Stam
Utrecht University School of Economics

Ben Spigel
University of Edinburgh Business School

November 2016

Abstract
This paper reviews and discusses the emergent entrepreneurial ecosystem
approach. Entrepreneurial ecosystems are defined as a set of interdependent actors
and factors coordinated in such a way that they enable productive entrepreneurship
within a particular territory. The purpose of this paper is to critically investigate the
emerging literature on entrepreneurial ecosystems. Current work on ecosystems is
underdeveloped, focusing more on superficial generalizations based on successful
case studies such as Silicon Valley or Boulder, Colorado rather than on rigorous
social science research. The paper provides a review of the multiple definitions of
ecosystems found within the literature, and discusses the relationships between
ecosystems and allied concepts such as industrial districts, clusters, and innovation
systems. The paper concludes by discussing an integrative model that connects the
functional attributes of entrepreneurial ecosystems (including framework conditions
and systemic conditions) with entrepreneurial outputs and welfare outcomes. The
framework conditions consist of the social (informal and formal institutions) and
physical conditions enabling or constraining human interaction. Systemic conditions
are the heart of the ecosystem and include networks of entrepreneurs, leadership,
finance, talent, knowledge, and support services.

Keywords: Entrepreneurial ecosystems, entrepreneurship, regional development,

economic policy

JEL classification: D2, E02, L26, M13, O43, P00, R1, R58

Acknowledgements
We would like to thank Jarna Heinonen for valuable comments on prior versions of this paper.
 Entrepreneurial Ecosystems 1
Erik Stam (Utrecht University) & Ben Spigel (University of Edinburgh)

forthcoming in: Blackburn, R., De Clercq, D., Heinonen, J. & Wang, Z. (Eds) (2017) Handbook for Entrepreneurship and
Small Business. London: SAGE.

1. Introduction

In recent years the fields of entrepreneurship studies, economic geography, urban economics, and the
economics of entrepreneurship have moved closer to each other through research on the context of
entrepreneurship (Ucbasaran et al., 2001; Welter, 2011; Zahra et al., 2014; Autio et al., 2014), the
growing recognition that not all types of entrepreneurship are equally important for economic growth
(Henrekson & Sanandaji ,2014; Stam et al., 2009; 2011; Wong et al., 2005), and the increasing
interest in the entrepreneurial actor within urban and regional economics (Acs & Armington, 2004;
Feldman, 2001; Glaeser et al., 2010). These developments have culminated in an emerging
entrepreneurial ecosystem approach that explicitly focuses on how urban and regional contexts affect
ambitious entrepreneurship. In this chapter we will review and discuss this emergent entrepreneurial
ecosystem approach. We define entrepreneurial ecosystems as a set of interdependent actors and
factors coordinated in such a way that they enable productive entrepreneurship within a particular
territory. We see productive entrepreneurship (Baumol, 1990) as an outcome of successful ambitious
entrepreneurship. Ambitious entrepreneurs are individuals exploring opportunities to discover and
evaluate new goods and services and exploit them in order to add as much value as possible (Stam et
al., 2012). That means more than just 'being your own boss' or 'pursuing self-fulfilment' through
business ownership, ambitious entrepreneurs attach importance to the performance and success of
their ventures and seek to quickly scale up (Stam et al., 2012). In practice ambitious entrepreneurs are
more likely to achieve substantial firm growth, innovation or internationalization than the ‘average’
entrepreneur.
Though recent interest in entrepreneurial ecosystems amongst academic researchers is driven
by its popularity with policymakers and entrepreneurs, it is part of a larger trend in entrepreneurship
studies. The fundamental ideas behind entrepreneurial ecosystems were first developed in the 1980s
and 1990s as part of a shift in entrepreneurship studies away from individualistic, personality-based
research towards a broader perspective that incorporated the role of social, cultural, and economic
forces in the entrepreneurship process (Dodd & Anderson, 2007). This was part of a wider movement
away from conceptions of the entrepreneur as a solitary Schumpeterian ‘economic superman’ and
towards a more nuanced view of entrepreneurship as a social process embedded in broader contexts
(Nijkamp, 2003; Steyaert & Katz, 2004). In particular, the place that entrepreneurship takes within is
seen as having a crucial impact over the entire entrepreneurship process, from the ability and
willingness of nascent entrepreneurs to start a firm to their ability to find venture capital and
eventually structure an exit from the firm. Works by Pennings (1982), Dubini (1989), Van de Ven
(1993) and Bahrami and Evans (1995) developed the concept of an ‘entrepreneurial environment’ or
ecosystem in order to explain the influence regional economic and social factors have over the
entrepreneurship process. Building on previous movements that decentered the individual
entrepreneur as the sole locus of value creation, the new contextual turn emphasizes the importance of
situating the entrepreneurial phenomenon in a broader field that incorporates temporal, spatial, social,
organizational, and market dimensions of context (Zahra, 2007; Zahra et al., 2014). While the past
decade has seen entrepreneurship researchers become more sensitive to some contexts such as
location, too often context is “taken for granted, its influence underappreciated or…controlled away”
(Welter, 2011: 173-174). That is, previous work in entrepreneurship has tended to attempt to eliminate
the role of context in order to produce generalizable models of entrepreneurial activity when instead
context should be the specific focus of investigation. A context such as location should not be treated
as a simple control variable or proxy; a deeper examination of how the cultural, social, political, and
economic structures and processes associated with a place influence all aspects of the entrepreneurial

1
This chapter is partly based on Stam (2015)

1
journey is required. A context like location is not a cause of particular entrepreneurial practices but
rather reflects a much more complex influence on entrepreneurship (Johannisson, 2011).
The purpose of this chapter is to critically investigate the emerging literature on
entrepreneurial ecosystems. Current work on ecosystems is underdeveloped, focusing more on
superficial generalizations based on successful case studies such as Silicon Valley or Boulder,
Colorado rather than on rigorous social science research. The next section provides a review of the
multiple definitions of ecosystems found within the literature. Next, we discuss the relationships
between ecosystems and allied concepts such as industrial districts, clusters, and innovation systems.
The chapter concludes by discussing an integrative model that connects the functional attributes of
entrepreneurial ecosystems with entrepreneurial outputs and welfare outcomes.

2. The entrepreneurial ecosystem defined

The concept of entrepreneurial ecosystems has gained popularity in recent years due to mainstream
business books such as Feld’s (2012) Startup Communities and work by Isenberg (2010) in the
Harvard Business Review. These works have popularized the idea amongst entrepreneurial leaders
and policymakers that a place’s community and culture can have a significant impact on the
entrepreneurship process. But despite its popularity, there is not yet a widely shared definition of
entrepreneurial ecosystems amongst researchers or practitioners. The first component of the term is
entrepreneurial: a process in which opportunities for creating new goods and services are explored,
evaluated and exploited (Schumpeter, 1934; Shane & Venkatamaran, 2000). The entrepreneurial
ecosystem approach often narrows this entrepreneurship down to ‘high-growth start-ups’ or ‘scale-
ups’, claiming that this type of entrepreneurship is an important source of innovation, productivity
growth, and employment (World Economic Forum, 2013; Mason and Brown, 2014). Empirically, this
claim seems too exclusive: networks of innovative start-ups or entrepreneurial employees can also be
forms of productive entrepreneurship (Baumol, 1990) and in that way the source of earlier mentioned
welfare outcomes. But it is clear that the entrepreneurial ecosystem approach does not by definition
include the traditional statistical indicators of entrepreneurship, such as 'self-employment' or 'small
businesses' into entrepreneurship. This distinction between the traditional measures of
entrepreneurship and the conceptually more adequate measures of entrepreneurship such as innovative
and growth-oriented entrepreneurship, is increasingly emphasized in the entrepreneurship literature
(Shane, 2009; Stam et al., 2012; Mason & Brown, 2013; Henrekson & Sanandaji, 2014).
The second component of the term is ecosystem. The biological interpretation of this concept
in which the interaction of living organisms with their physical environment is at the centre is
obviously not to be taken too literally. Rather, the entrepreneurial ecosystem approach emphasizes
that entrepreneurship takes place in a community of interdependent actors (cf. Freeman & Audia,
2006). In particular the literature on entrepreneurial ecosystems focuses on the role of the (social)
context in allowing or restricting entrepreneurship and in that sense is closely connected to other
recent ‘systems of entrepreneurship’ or systemic entrepreneurship research approaches (Neck et al.,
2004; Sternberg, 2007; Ylinenpää, 2009; Acs et al., 2014), which often aim to bridge the innovation
system approach and entrepreneurship studies. Unlike previous uses of the term ‘ecosystem’ in the
management literature such as by Moore (1993) and Iansiti and Levien (2004) that focus on the
organization of a single industry or value chain, entrepreneurial ecosystems are an inherently
geographic perspective. That is to say, entrepreneurial ecosystems focus on the cultures, institutions,
and networks that build up within a region over time rather than the emergence of order within global
markets.
Entrepreneurial activity, as an output of the entrepreneurial ecosystem, is considered the
process by which individuals create opportunities for innovation. This innovation will eventually lead
to new value in society and this is therefore the ultimate outcome of an entrepreneurial ecosystem
while entrepreneurial activity is a more intermediary output of the system. This entrepreneurial
activity has many manifestations, such as innovative start-ups, high-growth start-ups, and
entrepreneurial employees (Stam, 2014). Especially entrepreneurial employees seem to be of great
importance for new value creation in developed economies like Europe (Bosma et al., 2012; Stam,
2013; Bosma et al., 2014). The term productive entrepreneurship refers to “any entrepreneurial
activity that contributes directly or indirectly to net output of the economy or to the capacity to

2
produce additional output” (Baumol, 1993 p. 30); which we interpret as entrepreneurial activity that
creates aggregate welfare increases. Productive entrepreneurship might also include failed enterprises
that have provided a fertile breeding ground for subsequent ventures or inspired them, creating net
social value (‘catalyst ventures’: Davidsson, 2005). Technically speaking this means that the total
(social) value created by entrepreneurial activity should be more than the sum of the (private) value
created for the individual entrepreneurs (leaving distributional issues aside).
While work on entrepreneurial ecosystems is still in its infancy there are already several
empirical studies showing how a rich entrepreneurial ecosystem enables entrepreneurship and
subsequent value creation at the regional level (Fritsch, 2013; Tsvetkova, 2015). For example, Mack
and Mayer (2016) explore how early entrepreneurial successes in Phoenix, Arizona has contributed to
a persistently strong entrepreneurial ecosystem based on visible success stories, a strong
entrepreneurial culture, and supportive public policies. Similarly, Spigel’s (2015) study of
entrepreneurial ecosystems in Waterloo and Calgary, Canada suggests that while ecosystems can have
different structures and origins, their success lies in their ability to create a cohesive social and
economic system that supports the creation and growth of new ventures. Other work on regions such
as Silicon Valley (Saxenian, 1994; Kenney and Patton, 2005), Washington DC (Feldman, 2001) and
Kyoto (Aoyama, 2009) — even if not using the precise term ‘entrepreneurial ecosystem’ — described
how interlocking historically produced, place-based elements created the conditions for long-term
entrepreneurial success. Works such as Acs et al. (2014) have employed large scale quantitative
methods, rather than qualitative case studies, to identify strong entrepreneurial ecosystems and show
the different underlying local factors associated with high levels of innovative entrepreneurship.

3. Predecessors to the entrepreneurial ecosystem approach

What the entrepreneurial ecosystem approach has in common with other established concepts - such
as industrial districts, clusters, and innovation systems – is the focus on the external business
environment: that there are forces beyond the boundaries of an organization but within those of a
region that can contribute to a firm’s overall competitiveness (see table 1). The industrial district
approach emphasizes the local division of labour of an industry (Marshall, 1920) and the interaction
between the community of people and a population of firms within a socio-territorial entity (Becattini,
1990) in order to be successful on international markets. The cluster approach focuses on ‘geographic
concentrations of interconnected companies, specialised suppliers, service providers, firms in related
industries, and associated institutions (…) in particular fields that compete but also co-operate’
(Porter, 1998: 197). Regional innovation systems (RIS) refer to the networks and institutions linking
knowledge producing hubs such as universities and public research labs within a region and
innovative firms. These linkages allow knowledge to spill over between different organizations,
increasing a region’s overall innovativeness (Cooke et al., 1997).
The entrepreneurial ecosystem approach differs from industrial district, cluster, and
innovation system approaches by the fact that the entrepreneur, rather than the firm, is the focal point
of analysis. The entrepreneurial ecosystem approach thus begins with the entrepreneurial individual
instead of the company but also emphasizes the role of the social and economic context surrounding
the entrepreneurial process. Most cluster studies focus on firms and industries, including their
dynamics (Frenken et al. 2015). As opposed to the clusters, district, and innovation systems literature,
the focus of ecosystems research is placed firmly on the entrepreneur and the startup rather than
larger, more established firms or slower growing SMEs. The high-growth startups that make up the
basis of entrepreneurial ecosystems are not necessary included in all cluster and industrial district
models (Markusen, 1996). While frameworks of industrial districts, clusters, and innovation systems
do include a role for entrepreneurs (e.g. Henry & Pinch 2000; Cooke 2001; Ylinepää 2009), the focus
is not specifically on them but rather the role of entrepreneurs and startups within larger systems of
value creation and innovation. As a result, these existing approaches often see startups as smaller
versions of larger, international firms rather than as unique organizational entities with different (and
often more constrained) capabilities and resources.

3
Table 1. Comparison with industrial district, cluster, and innovation system literature
Key actors Key concepts Input into Entrepreneurial Key outcome Key references Key references
Ecosystem approach entrepreneurship
Marshallian SMEs Labor market pooling; Talent (labor market pooling), Regional economic Marshall 1890; -
industrial specialized goods and intermediate services growth Krugman 1991;
district services; knowledge (specialized goods and (productivity) Markusen 1996
spillovers; market services), knowledge
competition (spillovers)
Italianate SMEs; local Flexible specialization, Networks between Regional economic Piore & Sabel 1984; Johannisson et al.
Industrial government interfirm cooperation, entrepreneurs and enterprises growth Becattini 1990; Harrison 1994; Malecki
district trust (social (employment) 1992 1997; Lazerson &
embeddedness) Lorenzoni 1999
Cluster Innovative Factor conditions; Talent, finance, knowledge, National / regional Porter 1990; 1998 Rocha 2004; Rocha
firms demand conditions; physical infrastructure (factor competitiveness & Sternberg 2005;
related and supporting conditions); demand (productivity of Delgado et al. 2010
industries; firm (demand); support services / particular
structure, strategy and intermediaries (related and industries)
rivalry supporting industries); …
Innovation Innovative Networks, inter- Knowledge, finance, formal Innovation Freeman 1987; Lundvall Sternberg 2007;
system firms; national organizational learning, institutions, demand 1992; Braczyk et al Ylinenpää 2009
government system 1998

4
 Beyond this, the role of knowledge differs between ecosystems and allied concepts like
clusters and innovation systems. Within traditional models knowledge refers to the technical know-
how necessary to develop new products and technologies and the market knowledge necessary to
know which new products will succeed in the marketplace (see Cooke, 2001). This knowledge is key
in ecosystems, but ecosystems approaches also highlight a new type of knowledge: knowledge about
the entrepreneurship process itself. This includes knowledge about the challenges facing
entrepreneurs as they scale, how to design business plans and pitch ideas to angel investors and
venture capitalists, and how to overcome the liability of newness when working with potential clients
and suppliers. Thus, the mentoring and networking between entrepreneurs are critical to sharing
entrepreneurial knowledge within an ecosystem (Lafuente et al. 2007).
Another significant contrast with other concepts is that the entrepreneurial ecosystem
approach not only sees entrepreneurship as a result of the system, but also sees the importance of
entrepreneurs as central players (leaders) in the creation of the system and in keeping the system
healthy (Feldman, 2014). This “privatization” of entrepreneurship policy diminishes the role of the
state compared with previous policy approaches. However, this does not remove its role but rather
shifts it to that of a 'feeder' of the ecosystem than as a ‘leader’ (Feld, 2012). Entrepreneurs with a
long-term commitment to the ecosystem are often best positioned to recognize the opportunities and
restrictions of the ecosystem and to deal with them together with other 'feeders' of the ecosystem
(such as professional service providers and the financial infrastructure). These successful
businesspeople and philanthropists can act as ‘dealmakers,’ using their own social networks and
capital to improve the entrepreneurial environment of their home region (Feldman and Zoller, 2014).
However, the government retains an important role as a 'feeder' who acts to create a conducive
economic and social environment for entrepreneurship, for example in adjusting laws and regulations
or providing training and educational opportunities. Market failures and system failures are not
necessarily rationales for government intervention: even here, entrepreneurs can find opportunities,
for example by reducing information asymmetry and organizing collective action to create public
goods.

Table 2. Differences and similarities between entrepreneurial ecosystems and related concepts
Approach Industrial District, Cluster, Innovation System Entrepreneurial Ecosystem

Main Main focus is on economic and social
focus structures of a place that influence overall
innovation and firm competitiveness. In many
cases, little distinction made between (fast
growing) startups and other types of
organizations.
Role of Focus on knowledge as source of new
knowledge technological and market insights.
Knowledge from multiple sources is
recombined to increase firm competitiveness.
Knowledge spillovers from universities and
other large research intensive organizations
are crucial.
Startups explicitly at centre of ecosystem.
Seen as distinct from established large firms
and (lower-growth) SMEs in terms of
conceptual development and policy
formation.
In addition to market and technical
knowledge, entrepreneurial knowledge is
crucial. Knowledge about the
entrepreneurship process is shared between
entrepreneurs and mentors through informal
social networks, entrepreneurship
organizations, and training courses offered.

Locus of Private firms and state is primary locus of
action action in building and maintaining industrial
district/cluster/innovation system. Little room
for individual agency in their creation.
Entrepreneur is the core actor in building and
sustaining the ecosystem. While state and
other sources might support ecosystem
through public investment, entrepreneurs
retain agency to develop and lead the
ecosystem.

5
 As illustrated in Table 2, there are significant differences between entrepreneurial ecosystems
and allied concepts such as industrial districts, clusters, and innovation systems. This does not mean
that work on ecosystems cannot draw on the decades of research underlying these concepts, but that
the findings from this work must be reinterpreted through the agent-centred approach that is at the
heart of the entrepreneurial ecosystem approach.

4. Attributes of successful entrepreneurial ecosystems

The recent popular literature on entrepreneurial ecosystems is directly aimed at the key stakeholders
of the ecosystem, mainly entrepreneurial leaders and policymakers rather than an academic audience.
The recent entrepreneurial ecosystem literature provides several lists of factors which are deemed to
be important for the success of an entrepreneurial ecosystem. Naturally, entrepreneurs (being visible
and connected) are considered to be the heart of a successful ecosystem, but successful
entrepreneurial ecosystems have multiple attributes (Feld, 2012: 186-187). Next to the key role of
entrepreneurs themselves (in leading the development of the ecosystem and as mentors or advisors)
the nine attributes by Feld (2012) emphasize the interaction between the players in the ecosystem
(with high network density, many connecting events, and large companies collaborating with local
start-ups) and access to all kind of relevant resources (talent, services, capital), with an enabling role
of government at the background.
An important input is a broad, deep talent pool of employees in all sectors and areas of
expertise. This includes both technical workers as well as more business-oriented workers such as
salespeople, marketers, and business development professionals. Universities are an excellent
resource for start-up talent and should be well connected to the community. Next to human capital,
financial capital is key: a strong, dense, and supportive community of VCs, business angels, seed
investors, and other forms of financing should be available, visible, and accessible across sectors,
demographics, and geography. A successful ecosystem necessitates leadership, consisting of a strong
group of entrepreneurs who are visible, accessible and committed to the region being a great place to
start and grow a company. It also requires many well-respected mentors and advisors giving back
across all stages, sectors, demographics, and geographies as well as a solid presence of effective and
well-integrated accelerators and incubators (i.e. intermediaries). In addition, professional services
(legal, accounting, real estate, insurance, consulting) that specialize in the unique needs of startups
and scale-ups and appropriately priced (such as offering equity-for-service arrangements). For an
ecosystem to be successful, large established organizations should also be supportive. This includes
large anchor firms, which should create specific departments and programs to encourage cooperation
with high-growth start-ups, and it also includes strong government support for and understanding of
start-ups to economic growth. Additionally, supportive policies should be in place covering economic
development, tax, and investment vehicles. Another prerequisite is a large number of events for
entrepreneurs and community to connect and engage, with highly visible and authentic participants
(e.g. meet-ups, pitch days, startup weekends, boot camps, hackatons, and competitions). Finally, a
thriving ecosystems is said to depend on a deep, well-connected community of start-ups and
entrepreneurs along with engaged and visible investors, advisors, mentors and supporters (indicated
by high network density). Optimally, these people and organizations cut across sectors and
demographics. Everyone must be willing to give back to his community.
Isenberg (2010) also discusses the concept of the entrepreneurial ecosystem. He notes that
there is no exact formula for the creation of such an ecosystem but that (public) leaders should follow
nine principles when building an entrepreneurial ecosystem. These principles first emphasize the role
of local conditions and bottom-up processes: (1) stop emulating Silicon Valley; (2) shape the
ecosystem around local conditions; (3) engage the private sector from the start; (4) stress the roots of
new ventures; (5) don’t over engineer clusters; help them grow organically. Second, they emphasize
ambitious entrepreneurship: (6) favor the high potentials; (7) get a big win on the board. And third,
focus on institutions: (8) tackle cultural change head-on; (9) reform legal, bureaucratic, and regulatory
frameworks). These principles are claimed to lead to ‘venture creation’, the ‘creation of an
ecosystem’, and a ‘vibrant business sector’ (Isenberg, 2010). It is unclear how the causal mechanisms
work to realize these different results. Even though this might be a practitioner’s point of view, the
emphasis on the role of local conditions and bottom-up processes is largely in line with recent

6
academic work on regional innovation and growth (cf. Boschma & Martin, 2010; Cooke et al., 2011),
while the focus on ambitious entrepreneurship and institutions is also a key feature of recent
entrepreneurship research (Henrekson & Johansson, 2009; Stam et al., 2012; Acs et al., 2014).
Based on this, Isenberg (2011) formulates six distinct domains of the ecosystem: policy,
finance, culture, support, human capital and markets. This largely overlaps with the previously
mentioned nine attributes and the eight pillars distinguished by the World Economic Forum (2013: 6-
7) for a successful ecosystem, each with a number of components. These pillars also focus on the
presence of key factors (resources) like human capital, finance, and services; the actors involved in
this (talent, investors, mentors / advisors, entrepreneurial peers); the formal (‘government &
regulatory framework’) and informal institutions (‘cultural support’) enabling entrepreneurship; and
finally, access to customers in domestic and foreign markets.
The listed attributes, principles, and pillars show that the entrepreneurial ecosystem approach
contains a shift of traditional economic thinking about businesses, and especially on markets and
market failure, to a new economic view on people, networks and institutions. The common
denominator appears to be the fact that entrepreneurs create new value, organized by a wide variety of
governance modes, enabled and confined within a specific institutional context. This does not mean
that companies and markets (and market failure) are irrelevant. But markets and companies are
governance modes which, like all other forms of governance, will always be imperfect. Moreover,
entrepreneurship is often about companies and markets “in the making”, and not about situations that
come close to a 'fully efficient market equilibrium', as in the ideal of the market failure approach.
Drawing on these studies, Spigel (2015: 2) defines entrepreneurial ecosystems as
‘combinations of social, political, economic, and cultural elements within a region that support the
development and growth of innovative startups and encourage nascent entrepreneurs and other actors
to take the risks of starting, funding, and otherwise assisting high-risk ventures’. He groups these
attributes into three categories - cultural, social, and material - that explain the level of entrepreneurial
activity as the output of entrepreneurial ecosystems: cultural attributes (supportive culture and
histories of entrepreneurship), social attributes (worker talent, investment capital, networks, mentors
and role models), and material attributes (policy and governance, universities, support services,
physical infrastructure, open markets). Importantly, these categories of attributes are not isolated from
one another but are created and reproduced through their interrelationships. For example, networking
programs sponsored by a regional government (a material attribute) depends on the pre-existence of
existing knowledge sharing networks within the region to build on (a social attribute), which in turn
requires the effort of business networking and knowledge sharing to be legitimized within the local
culture (cultural attribute). But while the operation of the program depends on these social and
cultural attributes, it also strengthens and reproduces them by helping to create new successful new
ventures who see networking with other entrepreneurs as a normal business activity. This relationship
is illustrated in Figure 1.

7
Figure 1. Relationships between attributes within entrepreneurial ecosystems (Spigel, 2015)

5. Shortcomings of the entrepreneurial ecosystem approach

The mere popularity of the entrepreneurial ecosystem approach is no guarantee of its profundity.
Seductive though the entrepreneurial ecosystem concept is, there is much about it that is problematic
and the rush to employ the entrepreneurial ecosystem approach has run ahead of answering many
fundamental conceptual, theoretical and empirical questions. The phenomenon at first appears rather
tautological: entrepreneurial ecosystems are systems that produce successful entrepreneurship, and
where there is a lot of successful entrepreneurship there is apparently a good entrepreneurial
ecosystem. Such tautological reasoning ultimately offers little insight for research or public policy.
Secondly, the approach as yet provides only long laundry lists of relevant factors without a clear
reasoning of cause and effect nor how they are tied to specific place-based histories. These factors do
provide some focus but they offer no consistent explanation of their coherence or their interdependent
effects on entrepreneurship - and, ultimately, on aggregate welfare. And third, it is not clear which
level of analysis this approach is targeting. Geographically, it could be a city, a region or a country. It
can also be other systems less strictly defined in space, such as sectors or corporations, which create
opportunities for firm creation and growth.
Such approaches do not offer sufficient explanations for economic outcomes and has not been
clearly demarcated. Nor do they provide useful insights into the fundamental causes of the
entrepreneurial ecosystems. The World Economic Forum (2013) study, for example, concludes that
access to markets, human capital and finance are most important for the growth of entrepreneurial
companies. But these can best be seen as superficial perquisites, not as the fundamental causes for the
success of ecosystems - for human resources and finance are, after all, largely dependent on the
underlying institutions regarding education and financial markets (Acemoglu et al., 2005). For an
adequate explanation we must distinguish between the necessary and contingent conditions of an
ecosystem and clearly define the role of the government and other public organizations. This has not
yet been accomplished. The question remains: how do entrepreneurial ecosystems perform with the
different forms of entrepreneurship (as output) and in terms of aggregate welfare effects (as final
outcome)? After more elaboration, the tautology will probably disappear. Constructive synthesis of on
the one hand the previously mentioned elements of the entrepreneurial ecosystem approach, and on
the other hand the insights from the existing empirical studies on entrepreneurship and (regional)

8
economic development (Stam and Bosma, 2015a; Fritsch, 2013) could provide a better framework for
policy.
The question of the level at which entrepreneurial ecosystem operate has not been answered
yet. This would depend on the spatial scale on which the elements are achieved, on the one hand, and
how they are limited, on the other hand. For most system elements it seems possible to demarcate
them at a regional (sub-national) level (e.g. regional labour markets), while the conditions can be
designed on both regional and national level (e.g. national laws and regulations) (cf. Stam and Bosma,
2015b). In addition, entrepreneurs of high-growth firms and especially entrepreneurial employees in
large established firms could act as ecosystem connectors on a global scale, connecting distinct
regional entrepreneurial ecosystems in their role as knowledge integrators (Sternberg, 2007; Malecki,
2011).

6. An entrepreneurial ecosystem model

In response to these critiques we have developed a new entrepreneurial ecosystem model, as shown in
Figure 2. The new model includes insights from the previous literature (i.e. the aspects that have been
deemed important elements of entrepreneurial ecosystems), but most importantly it provides more
causal depth with four ontological layers (framework conditions, systemic conditions, outputs, and
outcomes), including the upward and downward causation, and intra-layer causal relations. Upward
causation reveals how the fundamental causes of new value creation are mediated by intermediate
causes, while downward causation shows how outcomes and outputs of the system over time also feed
back into the system conditions. Intra-layer causal relations refer to the interaction of the different
elements within the ecosystem, and how the different outputs and outcomes of the ecosystem might
interact.
The elements of the entrepreneurial ecosystem that can be distinguished are framework
conditions and systemic conditions. Both are summarized in Figure 2. The framework conditions
include the social (informal and formal institutions) and physical conditions enabling or constraining
human interaction. In addition, access to a more or less exogenous demand for new goods and
services is also of great importance. This access to buyers of goods and services, however, is likely to
be more related to the relative position of the ecosystem than its internal conditions (in contrast to for
example the important role of ‘home demand’ in Porter’s [1990] cluster approach). These conditions
might be regarded as the fundamental causes of value creation in the entrepreneurial ecosystem.
However, in order to fully understand how these fundamental causes lead to this outcome, we first
need to gain insight into how systemic conditions lead to entrepreneurial activity.
Systemic conditions are the heart of the ecosystem: networks of entrepreneurs, leadership,
finance, talent, knowledge, and support services. The presence of these elements and the interaction
between them are crucial for the success of the ecosystem. Networks of entrepreneurs provide an
information flow, enabling an effective distribution of knowledge, labour and capital. Leadership
provides direction and role models for the entrepreneurial ecosystem. This leadership is critical in
building and maintaining a healthy ecosystem. This involves a set of 'visible' entrepreneurial leaders
who are committed to the region. Access to financing — preferably provided by investors with
entrepreneurial knowledge — is crucial for investments in uncertain entrepreneurial projects with a
long-term horizon (see e.g. Kerr & Nanda, 2009). But perhaps the most important element of an
effective entrepreneurial ecosystem is the presence of a diverse and skilled group of workers ('talent':
see e.g. Acs & Armington, 2004; Lee et al., 2004; Qian et al., 2013). An important source of
opportunities for entrepreneurship can be found in knowledge, from both public and private
organizations (see e.g. Audretsch & Lehmann, 2005). Finally, the supply of support services by a
variety of intermediaries can substantially lower entry barriers for new entrepreneurial projects, and
reduce the time to market of innovations (see e.g. Zhang & Li, 2010).

9
Figure 2. Key elements, outputs and outcomes of the entrepreneurial ecosystem (based on: Stam,
2015)

7. Conclusions and policy implications

The concept of entrepreneurial ecosystems is very attracting to regional policymakers and leaders.
The idea that a certain mixture of public policy options, social attitudes, and financing can catalyse
long-lasting entrepreneurial and innovation activity is a seductive promise to leaders looking to create
a foundation for more sustainable growth. Authors like Feld (2012) are quick to point out that
examples like Silicon Valley are not replicable. The growth of places like Silicon Valley are tied
directly into particular events (e.g. the founding of Stanford University with an explicitly industrial
orientation), historical trends (the US government shifting defence research away from the east coast
in the 1930s and 1940s, the emergence of the venture capital industry in the 1950s and 1960s), and the
existence of a long-lasting culture that encourages risk taking, rebellion, and innovation throughout
the place (Saxenian, 1994; Lécuyer, 2006; Kenney, 2011). Taking one aspect of this complex
ecosystem, such as an effective university technology transfer office, will not replicate the other
factors, actors, and institutions that make it up.

However, other cases of successful ecosystems offer more reasonable approaches for policymakers.
Spigel's (2015) discussion of Waterloo, Ontario is an instructive example of how a mid-sized city can
develop a strong and supportive entrepreneurial ecosystem. The city was historically an industrial
economy, but the establishment of the University of Waterloo in the 1950s helped move the region
towards a more advanced, knowledge-based economy. Crucially, the university has had an applied,
industry-focused research orientation from its founding. As the university emerged as a world leading
centre for computer science and electrical engineering research, entrepreneurial faculty and students
were attracted to the university and the region. This pool of highly skilled workers was instrumental to
the creation and growth of Research in Motion, maker of the Blackberry smartphone as well as
numerous other smaller high-tech startups. While the region has a highly effective entrepreneurship
support organization, its role is secondary to the strong networks of entrepreneurs, mentors, financers.
These networks help new entrepreneurs learn the formal and informal skills associated with being a
high-tech entrepreneur and help knowledge about new markets, technologies, and opportunities to
flow through the region. This helps to reproduce and strengthen the region's overall cultural
orientation towards entrepreneurship, ensuring that it survives the recent decline of local anchor firms
like Research in Motion. This effective ecosystem was not created overnight nor through a purposeful
effort by the state or an individual. Rather, numerous actors and factors have contributed to creating
an ecosystem that supports innovative, high-growth entrepreneurship which in turn has helped the

10
region avoid the decline and population loss that commonly afflicts old industrial regions in the new
knowledge-based economy.

The entrepreneurial ecosystem approach intuitively evokes recognition and acknowledgement among
public and private stakeholders of regional economies. A critical review reveals that many insights of
decades of research into entrepreneurship and regional development in the past can be used as input to
the new approach. It might even be said that the entrepreneurial ecosystem approach contains no new
separate insights. However, the entrepreneurial ecosystem approach provides a framework for
integration of insights from the academic literature on regional entrepreneurship and the approach
includes several valuable novel contributions to our understanding of the entrepreneurship process
and its impact on regional economic development. First, the system approach builds up from the level
of the entrepreneur in order to better understand the context of the entrepreneurship. Such a system
approach also centres on the weakest link that mostly limits the performance of the entrepreneurial
ecosystem (Acs et al., 2014). A second novel contribution is the prominent place given to the
entrepreneurs themselves to build the entrepreneurial ecosystem and keep it healthy, fed by the other
stakeholders relevant to the ecosystem. Although causal relations within the system and the effects on
entrepreneurship and value creation have not yet been studied sufficiently, the entrepreneurial
ecosystem approach offers valuable elements for an improved understanding of the performance of
regional economies. The approach emphasizes interdependencies within the entrepreneurship context,
and it provides a bottom-up analysis of the performance of regional economies, without fixating on
individual entrepreneurs.
The approach also feeds the shift in entrepreneurship policy from a focus on the quantity to a
focus on the quality of entrepreneurship. In line with Thurik et al. (2013), the next shift would be from
‘entrepreneurship policy’ to policy for an ‘entrepreneurial economy’, i.e. an entrepreneurial
ecosystem. So policy will not be about maximizing a certain indicator of entrepreneurship, but about
creating a context, a system, in which productive entrepreneurship can flourish. This shift also
necessitates a shift in thinking about the rationales for policy. The economic policy perspective has
been reduced to examining the extent to which markets function optimally, in order to reach the
maximum (allocative) efficiency. Or, in policy language: is this a case of market failure? The
textbook rationales for government intervention are externalities, abuse of market power, public
goods, and asymmetric information. Markets are an important mode of governance in economic
systems. In the context of innovation and entrepreneurship, the failure of that mode of governance
may also be a reason for government intervention (see e.g. Jacobs and Theeuwes, 2005). Public policy
based on insights of the industrial district and cluster approaches also uses the market failure rationale
for public policy interventions, such as externalities arising from knowledge spillovers or coordination
failures due to information asymmetries. This mode of governance, however, also has substantial
constraints for innovation and entrepreneurship policies (Nooteboom & Stam, 2008). Market failure
plays a role, but not everything in the innovation system can be reduced to market contexts: the non-
market interaction is seen not only as market failure, but often as a necessity for the realization of
innovations (Teece, 1992). For innovation and knowledge sharing in general, especially non-codified
knowledge, informal interaction is of great importance. Cooperation makes it possible to exchange
much more knowledge than can be specified contractually. This was the reason to create a wider
framework for this type of policies: the innovation system approach. The focus of this approach is the
so-called system failure: the lack of sufficient elements in the innovation system (e.g. certain types of
financing or knowledge) or a non-optimal interaction between these elements (e.g. between
companies and knowledge institutes). An innovation system works well if there is a sufficient variety
of organizations that fulfil the required functions in such an innovation system, and as a result create
an optimal interaction between these elements (Nooteboom & Stam, 2008). The innovation system
approach not only examines at markets, but also, and especially, organizations and their interaction,
and not only through market transactions, but also otherwise. However, in the innovation system
approach, the role of entrepreneurs remains a black box, as does the market failure approach, for that
matter. This makes the entrepreneurial ecosystem approach more desirable, as it appears to be able to
solve the shortcomings of the market failure approach and the system failure approach, and seems
better applicable to policies for an entrepreneurial economy.

11
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